Tax revenues still weakening

Governor Andrew Cuomo’s budget staff has further reduced the state’s revenue estimates through fiscal 2020, adding to projected potential shortfalls during the period.

Total state tax receipts for the year ending next March 31 are now projected to hit $74.46 billion, which is $739 million below the estimate in the first quarter update released in July, according to the Mid-Year Financial Plan Update released today (two weeks behind schedule) by the Division of the Budget (DOB). The drop is concentrated in the personal income tax, which has fallen below estimates throughout the fiscal year—most recently in the closely watched September cash report from the comptroller’s office.

Including DOB’s previous update, projected PIT receipts for fiscal 2017 through 2020 have now stair-stepped down by a total of nearly $5 billion since the budget was enacted April 1, as illustrated in the chart below.

By traditional pre-2012 measures, the fall in revenues means projected state operating funds spending now exceeds projected revenues by $3.5 billion for fiscal 2018, a gap that will grow to $7.1 billion in 2019 and $8.9 billion by 2020 if spending is left on autopilot (which of course, won’t happen). Using Governor Cuomo’s preferred measure, which assumes continued spending growth caps of 2 percent a year, the budget gaps would amount to far more manageable figures of $689 million, $2 billion and $1.7 billion, respectively.

The weakening revenues will no doubt feed the fervor among spending advocates for an extension of the so-called “millionaire tax,” a 29 percent surcharge for single filers earning taxable income of at least $1 million and married-joint filers earning at least $2 million. Their current top rate of 8.82 percent is scheduled to sunset at the end of 2017, dropping back to the permanent-law level of 6.85 percent. An added fiscal quarter’s worth of the surtax would come to roughly $800 million, slightly more than next year’s projected gap net of a 2 percent spending hike. But beyond fiscal 2018, extending the tax for another three full years would yield more than $3.2 billion annually, which is significantly more revenue than the governor needs to balance a budget that stays within the 2 percent cap. In fact, in prior years, he has used a large portion of the revenue raised by the temporary surtax to finance temporary tax cuts, rather than using this money to permanently inflate the recurring operating expenditure baseline.

Rather than continuing to extend the surtax, Cuomo could close his officially projected gaps by cancelling temporary tax breaks, starting with the”property tax freeze credit,” which is due to be converted to a “rebate” for two years before expiring in 2020. Other targets for repeal should include the $470 million in tax credit subsidies the state will be doling out to film, TV, music and video game producers.

Today’s Mid-Year report also confirms estimates in this space last month of the likely fiscal impacts of Cuomo’s recent tentative contract settlement with the Public Employees Federation. DOB estimates giving the same 2 percent a year to all state employee unions would add $820 million to the annual budget by 2020 — a figure not reflected in current projected spending estimates.

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Highlights

No surprise: in light of tax collection trends, DOB drops tax projections by another $739 million for FY 2017.

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